ANNUAL REPORT
MATRIX ADVISORS
VALUE FUND
(Symbol: MAVFX)
JUNE 30, 2000
747 THIRD AVENUE, 31ST FLOOR
NEW YORK, NY 10017
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MATRIX ADVISORS
VALUE FUND
August 15, 2000
Dear Fellow Shareholder:
I am pleased to enclose our report and commentary concerning the Fund for
the quarter and fiscal year ending June 30, 2000.
The Fund posted a modest increase for the quarter, which looked
particularly attractive compared to the negative returns of the S&P 500 and
other major market indices. The Net Asset Value of the Fund as of June 30th was
$43.49, an increase of +1.66% for the quarter, and 6.67% for the most recent six
months.
The Fund's most recent quarterly gain continues to build upon the strength
of the past year, as illustrated by comparative performance during the most
recent 12 month period:
Comparisons of Equity Performance for the Fiscal Year 06/30/99-06/30/00
* Please see the important disclosure at the end of this letter.
Matrix Advisors Value Fund 14.18%
All Cap Average 3.04%
S&P 500 Index 7.24%
Value Line Index -12.43%
Russell 2000 Index 14.32%
We continue to be pleased by the Fund's even keel, despite the dramatic
volatility of the markets which has continued into the third quarter; in
addition, we remain very confident in the quality of our portfolio holdings.
Although we are not immune to the fluctuations of the markets, we have
certainly managed to avoid the worst of the market swings. We strongly believe
that the Fund is poised to perform relatively well in this tumultuous market
environment.
1
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MATRIX ADVISORS
VALUE FUND
Besides favorable returns, we are happy to report continued progress on a
number of other important fronts, including:
* Continued cash inflows to the Fund.
* Continued cost reductions, which are expected to reduce the Fund's
expense ratio further during the next fiscal year. We completed the
past year with a 0.99% expense ratio (after our partial fee and
expense waiver).
As we have mentioned in the past, Matrix partners, associates, friends and
family continue to build our own investments in the Fund.
If you have any questions on the enclosed or would like to discuss our
outlook on the market or the Fund in greater detail, please feel free to call us
at (800) 366-6223 or e-mail us at [email protected]. You might also
enjoy visiting our website at www.matrixadvisorsvaluefund.com.
Best regards.
Sincerely,
/s/ David A. Katz
David A. Katz, CFA
Chief Investment Officer
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. THE FUND'S AVERAGE ANNUAL
RETURNS FOR THE ONE-YEAR AND THREE-YEAR PERIODS ENDED JUNE 30, 2000 AND FOR THE
PERIOD FROM JULY 3, 1996, THE INCEPTION OF MATRIX'S INVOLVEMENT WITH THE FUND,
THROUGH THAT DATE WERE 14.18%, 15.47% AND 17.45%, RESPECTIVELY. The Advisor's
partial fee and expense waiver increases total return. Fund share value and
returns fluctuate and investors may have a gain or loss when they redeem shares.
Matrix Asset Advisors became sub-Advisor on July 3, 1996 and Advisor to the Fund
on May 11, 1997. Prior to those dates, the Fund was managed by another advisor.
Small and mid-cap investing may involve volatility and other risks. First Fund
Distributors, Inc., Phoenix, AZ 85018.
The Standard and Poor's 500 Index is an unmanaged stock index that measures the
performance of 500 domestic large-cap companies. The Russell 2000 Index is an
unmanaged index of 2,000 smaller capitalization domestic companies. The Value
Line Index is an unmanaged index of 1,700 equally weighted companies. The All
Cap Index is a Composite calculated based on 1/3 performance S&P (cap weighted),
1/3 Value Line, and 1/3 Russell 2000.
2
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MATRIX ADVISORS
VALUE FUND
Matrix Advisors Value Fund
Value of $10,000 vs S&P 500 Index
Annual Average Total Returns
Year Ended June 30, 2000
1 Year 14.18%
3 Year 15.47%
Inception (7/3/96)* 17.45%
Matrix
Advisors
Value Fund S&P 500 Index
---------- -------------
3-Jul-96 10,000 10,000
30-Jun-97 12,347 13,472
30-Jun-98 13,898 17,531
30-Jun-99 16,648 20,338
30-Jun-00 19,009 21,809
Past performance is not predictive of future performance.
The S&P 500 is an unmanaged index composed of 500 common stocks representative
of the stock market as a whole.
* Matrix Asset Advisors became the Sub-Advisor on July 3, 1996 and Advisor to
the Fund on May 11, 1997. Prior to those dates the Fund was managed by another
Advisor.
3
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MATRIX ADVISORS
VALUE FUND
MATRIX ADVISORS VALUE FUND
2ND QUARTER 2000 QUARTERLY COMMENTARY AND ANNUAL REPORT
" YOU DON'T NEED A WEATHERMAN TO KNOW WHICH WAY THE WIND BLOWS."
- Bob Dylan
In the second quarter, the wind of the stock market changed course and,
with varying degrees of intensity, blew in a very different direction than in
the previous two years.
By the end of the fiscal year, the most marked change in the market was the
about-face investors made concerning technology stocks. The NASDAQ Index, which
had a breathtaking fourth quarter of 1999, and had risen by 24% during the first
quarter of 2000, was down for the year by more than -22% at its May lows (a
sell-off of greater than -37%). While the negative tide affected all areas of
technology, the impact was most severe on the least profitable companies.
The almost-religious belief in the manifest destiny of emerging technology
companies, particularly Internet stocks, gave way to a new realization: In the
absence of profitability, many, if not most, of these companies will fail.
Perhaps of the greatest long-term importance was that investors
increasingly returned to fundamental considerations in assessing the
attractiveness of particular stocks. This represented a departure from the
previous momentum orientation of a great many investors, who had been content to
pile into stocks for the overriding reason that they were "going up". While it
is still too early to declare a return to a value-driven market, the market is
clearly beginning to move in that direction.
YOUR MATRIX ADVISORS VALUE FUND POSTED A MODEST GAIN OF 1.66% FOR THE
QUARTER, IN CONTRAST TO MOST MARKET INDICES, WHICH WERE NEGATIVE. FOR THE FIRST
HALF OF THE YEAR, THE FUND HAS ACHIEVED A 6.67% RETURN COMPARED TO
FLAT-TO-NEGATIVE RETURNS IN THE MAJOR MARKET INDICES, INCLUDING THE S&P 500
INDEX. FOR THE FISCAL YEAR ENDED JUNE 30TH, THE FUND PRODUCED A GAIN OF 14.18%,
WHICH COMPARED VERY FAVORABLY TO COMPARABLE MARKET INDICES, INCLUDING THE S&P
500 INDEX.
While the Fund was hardly immune from the intense volatility of the
markets, especially in its technology holdings, in aggregate it incurred far
less fluctuation than the major market indices. In fact, during the truly
unnerving days of April and May, the Fund held its value and even had increases.
One important way to look at volatility is to examine the movement of an
index or portfolio from its high point during a period to its lowest level
during a subsequent sell-off. For example, the NASDAQ declined by -37.3% from
its mid-March peak to its May lows; the S&P 500 declined by -10.1% from its high
to its April lows. The Fund declined by approximately -6.6% from the highs
achieved in the quarter.
It is also worth noting that, while we did have our share of technology
stock setbacks, on average our technology positions declined one-third less than
the average technology stock. This occurred in the aftermath of these same Fund
technology investments outpacing the NASDAQ in 1999.
4
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MATRIX ADVISORS
VALUE FUND
A BRIEF REVIEW OF THE FISCAL YEAR
Looking back over the past fiscal year, we were pleased to see that the
Fund was able to significantly outpace the successes of the overall market,
without as much of the volatility or risk. For example, while the NASDAQ's
technology stocks dazzled the market in calendar 1999, the Fund's technology
stocks posted even stronger performance during the same period.
Furthermore, as the fiscal year progressed the Fund made timely moves into
certain "Old Economy" stocks, particularly in pharmaceuticals and health care,
which have benefited from the rotation of the market away from technology
stocks.
As the new fiscal year begins, we not only enjoy a comfortable recent
performance advantage to the market, but also maintain a more
fundamentally-prudent portfolio. Our holdings have a median price/earnings ratio
of approximately 15.5 versus a 28.6 average ratio for the S&P 500. Above all, we
believe we own a portfolio of high-quality businesses in growth industries
selling at very reasonable valuations.
FUND PERFORMANCE FOR THE SECOND QUARTER
As in the overall market, many of the Fund's "Old Economy" stocks prospered
during the quarter, while "New Economy" investments by and large retreated.
Conspicuously-strong performance for the quarter came from pharmaceutical,
medical and health care stocks, including Abbott Laboratories, Aetna, American
Home Products, Bausch & Lomb, Johnson & Johnson, Pharmacia and St. Jude Medical.
In addition, Albertson's, Kodak and Mattel (yes, Mattel) posted attractive
gains.
New Economy holdings that continued their upward march included Alcatel,
First Data and Vishay Intertechnology.
We sold our holdings in Mark IV Industries following the announcement that
the Company would be taken private by a European investor group. In addition, we
were happy to take partial profits in Vishay, which had posted very strong
performance.
As mentioned above, many of our technology stocks gave back some of their
gains from the recent past. In this category were Arrow Electronics, Computer
Associates, Electronic Data Systems, Gartner Group, Global Crossing, Motorola,
and Sensormatic.
The incredible anxiousness of the market was reflected in the sell-off of
Electronic Data Systems, Motorola and Mylan Labs. In each case, short-term
issues overwhelmed compelling long-term business prospects and resulted in
significantly-reduced stock prices. When feasible, we significantly added to our
positions in these holdings. In each case, we expect market perception to turn
positive in short order and for these stocks to exhibit significant appreciation
in upcoming periods. Other decliners during the quarter included Bank of
America, Office Depot and Shaw Industries.
We used the proceeds from recent sales, along with prior cash balances, to
add to existing positions in Bank of America, Bausch & Lomb, Compaq Computer,
Equifax, Gartner Group and St. Jude Medical. We also slowly began to build
investments in Adaptec and Century Telephone. Finally, we sold our positions in
Bank One Corporation and Toys `R' Us based on our conviction that there were
more compelling investment alternatives available.
5
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MATRIX ADVISORS
VALUE FUND
FUND PERFORMANCE FOR THE FISCAL YEAR
For the overall fiscal year, strong performance came primarily from the
Fund's technology holdings. In this sector, conspicuously-strong performance
came from Alcatel, Arrow Electronics, LAM Research, Novellus, 3Com and Vishay.
Well-timed pharmaceutical and health care investments included Abbott Labs,
American Home Products, Bausch & Lomb, Johnson & Johnson, St. Jude Medical, and
Teva Pharmaceuticals. Other strong performers included such diverse companies as
Equifax, Heinz, Hon Industries, Manpower and Schlumberger.
One of the weakest sectors for the Fund during the fiscal year was
financial stocks, which also fared poorly in the overall market. Bank of
America, Bank One and Freddie Mac all posted negative results, while Comerica
was flat for the year. We do however expect that this sector is now
well-positioned for resurgent growth over the next 12 to 18 months.
New purchases during the fiscal year included Abbott Labs, Adaptec,
Albertson's, American Home Products, Bell Atlantic (Verizon), Century Telephone,
Equifax, Freddie Mac, Gartner Group, Heinz, Hon, Johnson & Johnson, MBIA, Mylan
Labs and Office Depot.
Positions that were sold for strong profits during the past year included
J.P. Morgan, LAM Research, O'Sullivan Industries, SLM Holding Corp, Schlumberger
and Teva Pharmaceuticals. Disappointing holdings that were sold included Bank
One, Philip Morris, and Toys `R' Us.
LOOKING AHEAD
Thanks to the counterintuitive nature of investing, intense market
volatility spawns great opportunity, and we do not shrink from such opportunity.
Both overall market and individual securities' volatility create at least three
forms of opportunity, each of which we have capitalized on:
1. Volatility allows us to lock in profits in stocks which experience sharp
short-term appreciation;
2. Volatility allows us to purchase strong businesses we like, and possibly
own already, at extremely good prices thanks to short-term price declines;
and
3. By presenting numerous short-term price "windows", volatility gives us the
opportunity to trade-up, moving out of languishing investments which might
face long-term recoveries, and into more compelling situations.
While we expect continued market turbulence as well as the occasional stock
setback, we are extremely confident in the business outlook for our holdings and
believe that the Fund is well positioned to grow in upcoming periods and be more
protective in the inevitable market pull backs.
* * *
Following this letter is our quarterly installment of Ideas About
Investing. This quarter we examine technology stocks, seeking to find the
rational balance in a sector that tends to blow either very hot or very cold. In
addition, we examine the investment implications of a "soft landing" for the
economy.
6
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MATRIX ADVISORS
VALUE FUND
Whether this letter ultimately finds its way to the beach, the deck, or
even into the charcoal grill, we wish you all the best for the unique pleasures
of summer. Best wishes.
IDEAS ABOUT INVESTING
A QUARTERLY QUEST FOR INVESTING ENLIGHTENMENT
I. TAKING AN UNEMOTIONAL LOOK AT TECHNOLOGY STOCKS, IF POSSIBLE.
Utter the words "tech stocks" and you are likely to engender a reaction
similar to the one experienced by a teenage boy who has just gotten up the nerve
to ask a girl out for the first time in his life: incredible elation or crushing
dejection.
Certainly the markets have had a manic reaction to tech stocks for the past
few years. They have either been incredibly hot or chillingly cold. As a result,
investors tend to have a love `em or hate `em reaction to the sector - usually a
function of their own investment experience.
But is there a middle ground? Is there a way to approach tech stocks
without the emotional trappings, in order to determine what role, if any, tech
stocks should play for the prudent investor?
Let's start with some basic information. Technology is a broad term that
can be used to apply to companies that make sophisticated computer-related
electronic products and components - such as computer manufacturers and computer
chip manufacturers, perform services or create products that support hardware-
such as software, networking and database management companies, or that explore
new technologies and the application thereof, such as Internet-related
companies.
Technology accounts for a huge portion of our economy as well as a
disproportionate amount of the growth in our economy.
It is important to realize that technology is a "big tent" that encompasses
a vast array of different types of companies that occupy different points on the
spectrum of the economy. Some tech stocks are cutting edge in their
technological primacy, but have no realistic way of making money for the
foreseeable future, if ever. Others are financial powerhouses whose technology
is basically run of the mill or commoditized, at risk of being eclipsed if not
rendered obsolete.
The point is that an investor can't just make a judgment about "tech".
Among other things, investors must ask themselves why they would invest in a
particular tech stock - what they believe the company can accomplish, and how
that compares to the price they have to pay for it.
In that regard, it would be useful to consider a study recently released by
Sanford C. Bernstein & Co., which looked at the "shelf life" of great growth
stocks. The study revealed that great technology companies enjoyed their status
as industry leaders on average only half as long as the great companies in other
sectors. While 50% of the corporate leaders in other sectors were replaced over
a five-year period, in tech companies, 50% of the leaders were replaced every
two-and-a-half years!
7
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MATRIX ADVISORS
VALUE FUND
This study has to give any thinking investor pause. Definitionally, the
dynamism of technology, the very essence of what makes it the leading engine of
overall economic growth, also makes for a bucking bronco ride for any given
individual tech stock.
The lesson from the Bernstein study is clear: When analyzing technology
stocks, a healthy skepticism as to valuation is definitely in order. The recent
travails of last year's technology star, Qualcomm, illustrates this point. At
its peak earlier in the year Qualcomm's p/e was a stratospheric 150x earnings.
The room for error was non-existent. Qualcomm's business continues to thrive,
yet as market participants have decided that business is merely great and not
spectacular, the stock has lost a staggering -75% of its value.
Technology is in part what helps keep our nation in the forefront of the
world's economy and culture. We should welcome technological advances, but
recognize that the "march of technological progress" is not mirrored on the
investment front. Tech stocks tend to be hot and cold because investors fall in
love with new ideas. However, new ideas do not necessarily make for profitable
businesses or great investments.
As we have seen in numerous industries throughout time, there is no
substitute for good old fundamental analysis. Technology stocks, like others,
should be valued based on earnings and cash flow streams, growth prospects,
industry leadership and positioning. Investors are well served not to fall in
hate or love with their technology investments. Like all other companies in the
market, at the right price many technology companies should be bought; at
another price, these same wonderful companies should be sold.
II. WHY IS EVERYONE TALKING ABOUT A "SOFT LANDING" FOR THE ECONOMY?
It is difficult to read a financial publication or watch an
investment-oriented television program without encountering a discussion of the
Federal Reserve Bank's efforts to engineer a "soft landing" for the economy.
In the often-counterintuitive world of investing, what might appear to be
good news is cause for concern, and vice-versa. So strong economic growth and
low unemployment are good news except that they might produce an overheated
economy where demand (fueled by widely-dispersed wealth) exceeds supply,
resulting in inflation.
And so we constantly hear about the Federal Reserve's search for the signs
of the possible re-emergence of inflation, and their willingness to raise
interest rates as a way of preventing the re-emergence of inflation.
Thus the hopeful talk of the economic soft landing, by which is meant a
reduction in the pace of the economy, but not such a severe reduction as to stop
economic growth. Or as the "Goldilocks" analogy (of Three Bears fame) has it, "
Not too hot, not too cold, but just right."
And so we find ourselves in something of a transitional phase. While
everyone wants the economy to cool (in the name of sustaining economic growth,
even if that means a slower rate of growth), there is still a wildly-negative
reaction when most companies, now feeling the impact of a slowing economy,
report lower than forecast earnings.
It is as if investors are saying, "I want the economy to slow down, I just
don't want you (fill in the name of the company here) to slow down." And this
inconsistency is having a significant short-term impact on the markets.
8
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MATRIX ADVISORS
VALUE FUND
This inconsistency is also contributing to market volatility. If the
economy is indeed slowing, as most recent signs indicate, that slowing will
invariably be felt on the individual corporate level.
However, unless and until there is a revision in the expectations for
corporate performance, there will continue to be dramatic,
economically-unconnected reactions to companies whose earnings fall short of
expectations that have not been revised to reflect a slowing economy.
The good news is that eventually there will be such a revision. At that
point truly strong businesses will be appreciated once again, and their stocks
should prosper and increase.
A slowing economy might therefore be very good news for the stock market,
or at least for those stocks where business has been strong and steady, and
where stock prices have not been stratospheric.
Investors would be well advised to ignore the short-term swings and focus
on the stocks of fundamentally-attractive companies. As the hype and hoopla of a
stock market based on a raging economy subsides, investment success will go to
those who have bought selectively, prudently and with a focus on healthy growth
prospects.
9
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MATRIX ADVISORS
VALUE FUND
SCHEDULE OF INVESTMENTS JUNE 30, 2000
--------------------------------------------------------------------------------
COMMON STOCKS (96.44%)
SECURITY SHARES VALUE
--------------------------------------------------------------------------------
BANKS: (5.32%)
Bank of America Corp. 12,000 $ 516,000
Comerica Inc. 10,000 448,750
-----------
964,750
-----------
COMPUTER AND PERIPHERALS: (6.41%)
Adaptec Inc.* 10,000 227,500
3 Com Corp.* 5,600 322,700
Compaq Computer Corp. 24,000 613,500
-----------
1,163,700
-----------
COMPUTER SOFTWARE AND SERVICES: (6.46%)
Electronic Data Systems Corp. 15,000 618,750
Gartner Group, Inc.* 56,000 553,000
-----------
1,171,750
-----------
CONSUMER PRODUCTS: (7.75%)
American Greetings Corp. 9,300 176,700
Bausch & Lomb, Inc. 10,500 812,438
Eastman Kodak Co. 7,000 416,500
-----------
1,405,638
-----------
DRUGS: (15.01%)
Abbott Laboratories 14,500 646,156
American Home Products 6,600 387,750
Bristol-Myers Squibb Co. 5,200 302,900
Johnson & Johnson 3,000 305,625
Mylan Laboratories 35,000 638,750
Pharmacia & Upjohn, Inc. 8,568 442,858
-----------
2,724,039
-----------
ELECTRONICS: (5.85%)
Arrow Electronics, Inc.* 9,000 279,000
Vishay Intertechnology, Inc.* 20,625 782,461
-----------
1,061,461
-----------
FINANCIAL SERVICES: (3.42%)
First Data Corp. 12,500 620,313
-----------
FOOD: (1.45%)
H.J. Heinz Co. 6,000 262,500
-----------
10
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MATRIX ADVISORS
VALUE FUND
COMMON STOCKS, CONTINUED
--------------------------------------------------------------------------------
SECURITY SHARES VALUE
--------------------------------------------------------------------------------
FURNITURE: (2.91%)
Hon Industries 11,000 $ 258,500
Shaw Industries, Inc. 21,500 268,750
-----------
527,250
-----------
GROCERY: (2.93%)
Albertson's Inc. 16,000 532,000
-----------
HOUSEHOLD PRODUCTS: (1.46%)
Tupperware Corp. 12,000 264,000
-----------
INDUSTRIAL SERVICES: (5.72%)
Equifax, Inc. 20,000 525,000
Manpower Inc. 16,000 512,000
-----------
1,037,000
-----------
INSURANCE: (0.53%)
MBIA, Inc. 2,000 96,375
-----------
MEDICAL SERVICES: (2.58%)
Aetna Inc. 7,300 468,569
-----------
MEDICAL SUPPLIES: (5.56%)
St. Jude Medical, Inc.* 22,000 1,009,250
-----------
MORTGAGE: (1.12%)
Federal Home Loan Mortgage Co. 5,000 202,500
-----------
PRECISION INSTRUMENTS: (2.33%)
Sensormatic Electronics Corp.* 26,700 422,194
-----------
RETAIL: (0.96%)
Office Depot, Inc.* 28,000 175,000
-----------
SEMICONDUCTORS/CAPITAL EQUIPMENT: (3.43%)
Novellus Systems, Inc.* 11,000 622,187
-----------
SOFTWARE/SERVICES: (2.86%)
Computer Associates International Inc. 10,141 519,092
-----------
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MATRIX ADVISORS
VALUE FUND
COMMON STOCKS, CONTINUED
--------------------------------------------------------------------------------
SECURITY SHARES VALUE
--------------------------------------------------------------------------------
TELECOMMUNICATIONS/EQUIPMENT: (6.63%)
Alcatel SA 10,000 $ 665,000
Motorola Inc. 18,500 537,656
-----------
1,202,656
-----------
TELECOMMUNICATIONS SERVICES (4.66%)
CenturyTel, Inc. 9,000 258,750
Global Crossing Ltd.* 10,745 282,728
Verizon Communications 6,000 304,875
-----------
846,353
-----------
TOYS AND SCHOOL SUPPLIES (1.09%)
Mattel Inc. 15,000 197,813
-----------
TOTAL COMMON STOCKS
(cost $13,466,684) 17,496,390
-----------
SHORT-TERM INVESTMENTS (3.67%)
--------------------------------------------------------------------------------
Firstar Treasury Fund 284,104 284,104
Victory Gradison U.S. Government
Reserves Fund 382,575 382,575
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $666,679) 666,679
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $14,133,363) - 100.11% 18,163,069
LIABILITIES IN EXCESS OF
OTHER ASSETS - (0.11%) (19,563)
-----------
TOTAL NET ASSETS - 100.00% $18,143,506
===========
* Non income-producing security.
The accompanying notes to financial statements are an integral part of
this schedule.
12
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MATRIX ADVISORS
VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value:
Common stocks (cost $13,466,684)............................... $17,496,390
Short-term investments (cost $666,679)......................... 666,679
Receivables:
Fund shares sold............................................... 144,324
Dividends and interest......................................... 20,774
Prepaid expenses and other assets................................ 4,212
-----------
TOTAL ASSETS 18,332,379
-----------
LIABILITIES
Payables:
Advisory fee................................................... 10,818
Securities purchased........................................... 127,305
Fund shares redeemed........................................... 30,000
Accrued expenses................................................. 20,750
-----------
TOTAL LIABILITIES 188,873
-----------
NET ASSETS $18,143,506
===========
SOURCE OF NET ASSETS
Capital
Par value of 417,184 shares outstanding (30,000,000 shares
authorized) at $.01 per share................................. $ 4,172
Paid-in capital ............................................... 13,715,415
-----------
Total capital paid in on shares................................ 13,719,587
Undistributed net investment income............................ 43,908
Undistributed net realized gain on
investments................................................. 350,305
Net unrealized appreciation of investments..................... 4,029,706
-----------
NET ASSETS $18,143,506
===========
NET ASSET VALUE PER SHARE
(Offering and Redemption Price) $ 43.49
===========
The accompanying notes to financial statements are an integral part of
these statements.
13
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MATRIX ADVISORS
VALUE FUND
FOR THE
YEAR ENDED
STATEMENT OF OPERATIONS JUNE 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends........................................................ $ 154,976
Interest......................................................... 26,681
-----------
TOTAL INCOME 181,657
-----------
EXPENSES
Investment advisory fee.......................................... 139,255
Transfer agent fee and expenses.................................. 39,935
Registration and filing fees..................................... 12,570
Audit fees....................................................... 12,000
Custodian fee and expenses....................................... 11,238
Reports to shareholders ......................................... 6,072
Miscellaneous.................................................... 4,079
Legal fees....................................................... 3,916
Insurance........................................................ 2,000
-----------
TOTAL EXPENSES 231,065
LESS: Advisory fees waived and
expenses paid (93,202)
-----------
NET EXPENSES 137,863
-----------
NET INVESTMENT INCOME 43,794
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS - NET
Realized gain on investments - net............................... 350,703
Change in unrealized appreciation of investments - net........... 1,568,503
-----------
GAIN ON INVESTMENTS - NET 1,919,206
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,963,000
===========
The accompanying notes to financial statements are an integral part of
these statements.
14
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MATRIX ADVISORS
VALUE FUND
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Net investment income........................... $ 43,794 $ 8,827
Realized gain on investments - net.............. 350,703 106,818
Change in unrealized appreciation
of investments - net.......................... 1,568,503 1,664,100
----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,963,000 1,779,745
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................... -- (26,658)
Realized gain on investments.................... (99,301) (201,601)
----------- -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (99,301) (228,259)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold .................................... 6,802,577 1,871,606
Shares issued in connection with reinvestment
of dividends.................................. 99,012 227,253
Shares redeemed................................. (1,769,371) (2,503,433)
----------- -----------
NET CHANGE FROM CAPITAL
SHARE TRANSACTIONS 5,132,218 (404,574)
----------- -----------
TOTAL INCREASE IN NET
ASSETS 6,995,917 1,146,912
Net assets, beginning of year................... 11,147,589 10,000,677
----------- -----------
Net assets, end of year (including undistributed
net investment income of $43,908 and $114,
respectively)................................. $18,143,506 $11,147,589
=========== ===========
CHANGES IN SHARES OUTSTANDING
Shares sold..................................... 168,974 60,574
Shares issued in connection with reinvestment
of dividends.................................. 2,560 7,516
Shares redeemed................................. (44,689) (81,688)
----------- -----------
INCREASE (DECREASE) 126,845 (13,598)
=========== ===========
The accompanying notes to financial statements are an integral part of
these statements.
15
<PAGE>
MATRIX ADVISORS
VALUE FUND
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Matrix Advisors Value Fund (the "Fund"), formerly known as LMH Fund, Ltd. and
Matrix/LMH Value Fund, is a Maryland corporation registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund commenced operations September 16, 1983. The objective of the Fund is
to achieve a total rate of return composed of capital appreciation and current
income.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The Fund consistently follows the accounting policies set forth below which are
in conformity with generally accepted accounting principles.
(a) Security Valuation
Portfolio securities which are traded on national securities exchanges are
valued at the last sale price on the principal exchange on which the security is
traded as of the close of the New York Stock Exchange. If there were no
transactions in a security on that day, the security is generally valued at the
last reported bid price. Securities traded over-the-counter are generally valued
at the latest bid price. If no quotations are available for a security, or if
the Board of Directors (or committee of the Board of Directors appointed for
that purpose) believes that the latest bid price of a security which has not
been traded on the date in question does not fairly reflect its market value, it
is valued in a manner determined in good faith by the Board of Directors, or its
delegates, to reflect its fair value.
(b) Federal Income Taxes
The Fund has elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. The Fund intends to distribute
substantially all of its taxable income and any capital gains less any
applicable capital loss carryforwards. Accordingly, no provision for Federal
income taxes has been made in the accompanying financial statements.
(c) Portfolio Transactions
Security transactions are accounted for on the trade date, the date the order to
buy or sell is executed. Security gains and losses are computed on an identified
cost basis.
(d) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
16
<PAGE>
MATRIX ADVISORS
VALUE FUND
(e) Other
Interest income is recorded on the accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
NOTE 3 - INVESTMENT ADVISORY FEE
The Fund has a management agreement with Matrix Asset Advisors, Inc. (the
"Advisor", "Matrix") to serve as investment advisor. Matrix, formerly the
Sub-Advisor, replaced Heine Management Group, Inc. ("Heine") as the Advisor on
May 11, 1997. Certain officers of the Advisor are also officers of the Fund.
Under the terms of the agreement, the Fund has agreed to pay the Advisor as
compensation for all services rendered, staff and facilities provided and
expenses paid or assumed, an annual fee, accrued daily, paid monthly, of 1.00%
of the Fund's average daily net assets. For the year ended June 30, 2000, Matrix
waived $91,202 of its fee and paid an additional $2,000 of expenses.
NOTE 4 - INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities for the year
ended June 30, 2000 were as follows:
Proceeds from
Sales (Including
Purchases Maturities)
--------- -----------
Common Stock and Bonds $ 9,863,812 $ 5,321,040
Short-term Obligations 10,610,228 10,179,056
At June 30, 2000, the cost of securities for federal income tax purposes was
substantially the same as that recorded for book purposes. Accordingly, the
aggregate gross unrealized appreciation of investments over cost for federal
income tax purposes was $4,555,588 and the aggregate gross unrealized
depreciation was $525,882, or a net unrealized appreciation of $4,029,706.
17
<PAGE>
MATRIX ADVISORS
VALUE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $ 38.40 $ 32.90 $ 29.39 $ 24.10 $ 20.98
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .............................. 0.11 0.03 0.14 0.10 0.47
Net realized and unrealized gain
on investments ................................... 5.30 6.26 3.54 5.52 3.12
------- ------- ------- ------- -------
Total from investment operations ..................... 5.41 6.29 3.68 5.62 3.59
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ................ (0.00) (0.09) (0.17) (0.33) (0.47)
Distributions from realized gains ................... (0.32) (0.70) (0.00) (0.00) (0.00)
------- ------- ------- ------- -------
Total distributions .................................. (0.32) (0.79) (0.17) (0.33) (0.47)
------- ------- ------- ------- -------
Net asset value, end of year ......................... $ 43.49 $ 38.40 $ 32.90 $ 29.39 $ 24.10
======= ======= ======= ======= =======
Total return ......................................... 14.18% 19.79% 12.56% 23.47% 17.16%
Ratios/supplemental data:
Net assets, end of year (millions) ................... $ 18.1 $ 11.1 $ 10.0 $ 8.5 $ 6.6
Ratio of operating expenses to average net assets:
Before expense reimbursement ........................ 1.65% 1.83% 1.80% 1.92% 1.84%
After expense reimbursement ......................... 0.99% 1.25% 1.23% 1.42% 1.84%
Ratio of net investment income (loss) to average
net assets:
Before expense reimbursement ........................ (0.35%) (0.48%) (0.12)% (0.06)% 2.01%
After expense reimbursement ......................... 0.31% 0.10% 0.45% 0.44% 2.01%
Portfolio turnover rate .............................. 40% 33% 68% 129% 57%
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
18
<PAGE>
MATRIX ADVISORS
VALUE FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS and
SHAREHOLDERS OF MATRIX ADVISORS VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Matrix Advisors Value Fund, as of June
30, 2000, and the related statement of operations for the year then ended and
the statement of changes in net assets and the financial highlights for each of
the two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights presented for the three-year
period ending June 30, 1998 were audited by other auditors whose report dated
August 20, 1998 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Matrix Advisors Value Fund as of June 30, 2000, the results of its operations
for the year then ended and the changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 4, 2000
19
<PAGE>
BOARD OF DIRECTORS
Leonard M. Heine, Jr., Director Emeritus
David A. Katz, CFA
Larry D. Kieszek
Robert M. Rosencrans
T. Michael Tucker
*
INVESTMENT ADVISOR
Matrix Asset Advisors, Inc.
747 Third Avenue, 31st Floor
New York, NY 10017
(800) 366-6223
*
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, OH 45202
*
TRANSFER AGENT
ICA Fund Services Corp.
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85018
*
ADMINISTRATOR
Investment Company Administration LLC
*
INDEPENDENT ACCOUNTANTS
Tait, Weller, & Baker
*
LEGAL COUNSEL
Swidler Berlin Shereff Friedman, LLP
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
